* U.S. ISM non-manufacturing index drops, pressures yields
* September rate hike declines further
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 6 U.S. Treasury yields fell on
Tuesday after a weaker-than-expected reading of a U.S. services
sector index for the month of August reinforced expectations the
Federal Reserve will not raise interest rates when it meets next
The U.S. services report came after a much
softer-than-forecast non-farm payrolls report on Friday, which
showed U.S. employers added 151,000 jobs in August, short of the
180,000 expected by economists polled by Reuters.
Tuesday's Institute for Supply Management report on
service-sector activity showed a drop in the index to 51.4, down
from 55.5 a month earlier and much lower than the consensus
expectation for a reading of 55.7. The drop in the ISM headline
index was the steepest since November 2008.
Fed funds futures prices indicated investors see just a 15
percent chance of a rate hike at September's meeting, down from
30 percent before the ISM data.
Benchmark 10-year Treasuries were up 10/32 in
price to yield 1.561 percent, from 1.597 percent on Friday.
The 30-year Treasury bond rose 18/32 in price to
yield 2.244 percent, from 2.272 percent late on Friday.
Two-year notes were up 2/32 in price to yield
0.750 percent, from Friday's 0.794 percent.
"Treasuries quickly jumped on the ISM report. We're seeing
all buyers as the odds for a September hike have diminished,"
said Justin Lederer, Treasury trader at Cantor Fitzgerald in New
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith